Ukrainian and Russian PMs try to head next gas dispute off at the pass

Vladimir Putin insists that Russia, the EU and Ukraine should set up a consortium to modernize Ukraine's gas pipeline network, with Moscow still to decide on a $5 billion loan to Kiev to pay for stored gas.

Gas talks between Kiev and Moscow were tough, as usual, with only one conclusion – another round of negotiations is needed. The main issue – Russia’s participation in upgrading the pipeline network in Ukraine.

Last month, Ukraine and the EU struck a deal to finance the work – excluding Russia from the project. Vladimir Putin wants Kiev to set up a gas consortium that will take all parties’ interests into the account.

“Several years ago we offered to create an international consortium, which will include Russia, Ukraine and European countries. This consortium was supposed to lease the gas transit system, while it would remain property of Ukraine. While the consortium would bear all the risks of modernisation and funding. What doubts could that bring about if the interests of all sides are respected?”

Yulia Timoshenko responded that under Ukrainian law, the gas pipeline system is state-property, and can’t be rented out. At the same time Kiev is asking Moscow to pay $5 billion worth of transit fees in advance – money which Ukraine will use to buy gas for storage.

“When gas is pumped into an underground storage facility, it’s not paid for by the consumers. Ukraine will come up with a project of an intergovernmental agreement which will space out the payments for the gas already pumped in. It will incorporate payments for transit in advance.”

Putin did not seem persuaded. He said the scheme is risky for Gazprom as long as the question of who owns and operates the pipeline system remains open.

“If Gazprom pays for transit in advance for several years and then the Ukrainian gas transit system is changed – as is planned, and the place of Naftogaz will be taken by a different entity – who will be responsible for this money?”

There was only one area of universal agreement. Russia will not fine Ukraine for importing less gas than it contracted for back in January.